Managing taxes as a content creator is a difficult and confusing thing.

So today, I want to walk you through everything that you need in order to make every tax season a breeze while avoiding IRS penalties and fees.

We are going to break this up into five parts: quarterly taxes, tax diversification, creator deductions, retirement planning, and entity formation. And if you want the full creator tax document that goes along with this, you can grab it for completely free here: The Creator Tax Pack

Part 1: Quarterly Taxes

This is the first and maybe the most important part of your creator taxes.

One of the most common and most disastrous situations that creators come to me with is big earnings, no tax savings, and no idea that they were even supposed to be paying taxes every single quarter. This takes an already large tax bill and expands it, as the IRS places penalties and interest on any unpaid tax.

So here is the plan you can use to avoid this headache altogether.

You first need to understand that there are four tax payments that need to be paid throughout the year.

What I like to do is set reminders on my calendar a week before the due date and on the date that the taxes are actually due.

How Do You Even Calculate This?

The actual calculation is just way too complicated to get into here. But there are a couple of rules of thumb we can use.

And if you do want to do the full tax calculation, go grab the creator tax pack in the link below because it is completely free. There is also a lot more information in there that we are not going to cover in this post.

The first rule of thumb is saving 20 to 30% of all of your income. But with this option, you might oversave, or you might very well undersave and end up with a large tax bill at the end of the year.

In my opinion, a better option is to analyze the tax brackets, estimate where you think your income will fall, use the top tax bracket you fall into, and then subtract 3 to 5% depending on how deep into that bracket you are. Then use that number to set aside into a savings account.

Now, like I said, in my opinion, the second rule of thumb is better than the first, but it could still lead to minor over- or underpayments. And estimating your quarterly taxes with a CPA or a financial planner may lead to that same result either way.

The Simple System I Use With My Clients

The very first thing I do is open a high-yield savings account and label that account tax savings.

Then you calculate your federal tax obligation, using either one of those methods we just discussed. If you are calculating the entire federal tax obligation for the full year, you will need to divide that number by four. That is the quarterly payment you need to make. Then divide that by three. That is how much money you need to be saving every single month.

Then you just set up those reminders, and please make your payments.

Now this is a bonus, but what you really should be doing is recalculating this quarterly tax estimate every single quarter based on how much money you have been earning for the full year and how much you expect to continue to earn.

Part 2: Tax Diversification

This is something that I will just touch on here, and it is an extremely important concept.

There are three different types of accounts for tax purposes.

All of these accounts are going to have their different purposes. Maybe one of your goals is to retire early. In that case, a taxable account can bridge the gap between your official retirement and the age at which you can withdraw from your retirement accounts. But taxable accounts could be good for other purposes as well, like shorter-term goals like buying a house or saving up for a new car.

Tax-deferred accounts mean you do not pay tax today, but you will when you withdraw. These are your traditional retirement accounts, and they are best used in the low tax brackets during your retirement years.

Now, as you near those higher tax brackets, this is where your tax-free accounts come into play. You could potentially be making $150,000 per year in retirement and take out up to that 12% bracket from your taxable or tax-deferred accounts. But then, once you need to bridge the gap between what that amount is and the other $150,000, you can start withdrawing from the tax-free accounts like your Roth IRA and reimbursing yourself from your health savings account for previous medical bills. So ultimately, you could keep yourself in the 12% tax bracket while having an income well over that.

I hope this helps you understand why it is so important to have assets spread across these three different account types.

Part 3: Creator Deductions

These are some of the most popular deductions that we see other creators taking advantage of.

• Equipment and tech: things like your SD cards, the camera you use to film your content, lighting equipment, and a lot of other stuff as well

• Home office: if you have a dedicated office space for conducting business and filming content, a portion of your rent may also be deductible

• Software and subscriptions: things like Adobe, Figma, Canva, or ManyChat

• Travel: if you are speaking on panels or attending creator events to network with fellow creators, then travel expenses like hotels and flights can also be deducted on your tax return

• Platform and processing fees: if you have a school community that charges you fees or your payment processor charges you fees anytime a payment gets processed, these are typically deductible

• Education: paying for another creator's course could also be a deductible expense

• Self-employed health insurance: this one gets missed quite often. As creators, we are all technically considered self-employed. The premiums you are paying for your health insurance are pretty brutal, especially if you live in California, but at least they are deductible on your return

How to Track All of This Throughout the Year

With all these deductions and expenses, it can be extremely difficult to track everything. But here is a simple system you can use to keep track of it year-round.

The first thing you can do is create a rule in your email account that files emails containing the word receipt into a folder that stores all of those receipts. Then, at the end of the year, you will have a folder with all of these receipts that you can easily go into and download, so that you make sure you are taking every single expense and deduction that you qualify for.

Now, if you have physical receipts, simply take a photo on your phone. And if you have an iPhone, these will automatically get sorted for you.

Quick tip: if you have physical receipts, take notes on them so that you remember what you purchased, why you purchased it, and this is especially useful for dinners with clients, so you remember exactly who you went out to dinner with.

Part 4: Retirement Planning

There are a lot of different retirement plans that we can use as creators and business owners, but typically, we are going to eliminate the SIMPLE IRA or group plans right off the bat because those are best for people who have employees. And many of these creator businesses do not have any employees.

This leaves us with the Solo 401 (k), SEP IRA, Traditional IRA, and Roth IRA.

Part 5: Entity Formation

Before we wrap this up, I need to touch on one more section that has the potential to be the biggest tax savings opportunity out of anything we have discussed today.

There are three main entities that we see creators elect.

• Sole proprietorship: great for when you are first getting started

• LLC: great for limiting your liability and separating your business assets from your personal assets

• S Corp: This is technically still an LLC, but it is just an election to be taxed as an S corporation. And this is the massive tax savings opportunity we are talking about.

Here Is How the S Corp Actually Works

As a sole prop or LLC, you pay 15.3% self-employment tax on net profit. Whereas with an S corporation, you only pay that 15.3% on the salary that you pay yourself through the business.

Here is what that looks like with real numbers. Say we have a business doing $300,000 in revenue with $50,000 in expenses.

The remaining $200,000 flows through to the creator as an owner's distribution. And in this situation, the creator would be saving roughly $30,000.

Now, this strategy does not work for everybody because there are added expenses like payroll and bookkeeping, but we typically see it start to make sense when creators earn $60,000 in net profit.

To Wrap This Up

These were some of the most important parts for content creators and other freelance business owners to understand when it comes to taxes. But there is so much more in the full document.

So if you want to grab your copy, go to the link below, and you can get it for completely free.

Cheers.